Can you believe that we’re down to the last ten days of 2021? 😲
While many of us are still on a holiday online shopping spree or are busy thinking of their noche buena spread, some of us already have their eyes locked on mentally, emotionally, and financially preparing for 2022. 🎯
Before we deep dive into writing our resolutions and setting our goals, it would be helpful to look at how we fared financially so we can improve our future financial standing.
As your financial buddy, we’re here to help you have an overview of your personal financial net worth through these insightful pointers. 💡
Understanding what “net worth” means
Net worth refers to the value of an individual’s financial and non-financial assets minus the total of all his/her liabilities. In the simplest terms, it is what an individual owns minus what he owes.
Everything you own that has value such as houses, lots, vehicles, bank account balances, investment account balances, business profits, and even the cash values of your insurance policies are called assets.
Meanwhile, liabilities are in the form of mortgages, vehicle loans, personal loans, credit card balances, and student loan balances among others.
Your net worth gives you a snapshot of your current financial status. The goal is to see your net worth increase annually; this is a great indicator that you are financially healthy!
How to compute your net worth
Computing your net worth is as easy as this:
- Write down all the assets that you have including cash and their cash equivalents
- Sum the total of these items to know the value of your total assets
- Write down all the liabilities you have
- Sum the total of these items to know the value of your total liabilities
- Subtract your total liabilities from your total assets to get your net worth
Here’s an example:
Pedro’s assets are a townhouse worth Php 1.2 million with an outstanding mortgage of Php 500,000, a bank savings of Php 220,000, and Php 30,000 investment account balance.
His liabilities include a credit card loan amounting to Php 60,000 and a personal loan of Php 80,000.
- Pedro’s total assets: Php 1,200,000 (house value) + Php 220,000 (savings account balance) + Php 30,000 (investment account balance) = Php 1,450,000
- Pedro’s total liabilities: Php 500,000 (remaining house mortgage) + Php 80,000 (personal loan) = Php 580,000
- Pedro’s net worth: Php1,450,000 – Php580,000 = Php 870,000
Since Pedro’s assets exceed his liabilities, Pedro has a positive net worth.
Getting the results
If during your financial assessment, you’ve learned that you have a negative net worth (liabilities exceed assets), here are things that you can do:
- Minimize your excessive spending.
- Make sure that you are paying your debts regularly.
- If you get cash incentives and other forms of bonuses at work, use this to do advanced debt payments.
Knowing your net worth provides you multiple advantages such as being able to identify which areas of spending must be given ample attention; it helps keep debts at bay; and empowers you to achieve your own definition of financial success.
Whatever outcome you may arrive at, remember that the figures (whether positive or negative) of your net worth do not define your self worth. It is what you do after learning your net worth that matters. You have 365 days ahead to make things better and we’re just here if you need help. You’ve got this, buddy 💕